Question

Sheffield Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with...

Sheffield Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $126,650, and the value of the warrants in the market is $22,350. The bonds sold in the market at issuance for $161,000.

(a) What entry should be made at the time of the issuance of the bonds and warrants? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation

Debit

Credit

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount


(b1) Prepare the entry if the warrants were nondetachable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation

Debit

Credit

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

enter an account title

enter a debit amount

enter a credit amount

0 0
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Answer #1
a
Market value of Bonds 126650
Market value of Warrants 22350
Total 149000
Value allocated to Bonds 136850 =161000*126650/149000
Value allocated to Warrants 24150 =161000*22350/149000
Account Titles and Explanation Debit Credit
Cash 161000
Discount on Bonds payable 38150
     Bonds payable 175000
     Paid in Capital-Stock Warrants 24150
b1
Account Titles and Explanation Debit Credit
Cash 161000
Discount on Bonds payable 14000
     Bonds payable 175000
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